Parsonage Allowance

Written By
Paul Tracy
Updated November 4, 2020

What is Parsonage Allowance?

In the tax world, a parsonage allowance is income earned by members of the clergy but excluded from gross income.

How Does Parsonage Allowance Work?

Let's say John Doe is a pastor at the XYZ Church. He earns $25,000 a year. The church also gives him a $50,000 parsonage allowance per year, which he uses to pay his mortgage, utilities and grocery bills.

When John Doe files his tax return at the end of the year, he can exclude the $50,000 parsonage allowance from his gross income. The church must be sure to designate the $50,000 as a parsonage allowance, however.

Why Does Parsonage Allowance Matter?

The IRS taxes ministers' wages, offerings and fees they receive from performing marriages, baptisms, funerals, etc. A parsonage allowance is tax-deductible when it comes to calculating income taxes, but it is not tax-deductible when it comes to self-employment tax. If John Doe were a self-employed pastor, his parsonage allowance would therefore become taxable.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Parsonage Allowance.
Be the first to ask a question

If you have a question about Parsonage Allowance, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Parsonage Allowance, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Parsonage Allowance

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms